tailieunhanh - Ebook The essentials of finance and accounting for nonfinancial managers: Part 2

(BQ) Part 2 book "The essentials of finance and accounting for nonfinancial managers" has contents: Return on investment, financing the business, business planning and the budget, selected business readings. | Chapter 10 Return on Investment AN INVESTMENT IS AN EXPOSURE of cash that has the objective of producing cash inflows in the future. The worthiness of an investment is measured by how much cash the investment is expected to generate. The analysis of return on investment is a financial forecasting tool that assists the business manager in evaluating whether a proposed investment opportunity is worthwhile within the context of the company’s business objectives and financial constraints. What Is Analyzed? The investments to be analyzed have some of the following characteristics: A major amount of money is involved. The financial commitment is for more than one year. Cash flow benefits are expected to be achieved over many years. The strategic direction of the company may be affected. The company’s prosperity may be significantly affected if the investment is made or not made. 149 150 Decision Making for Improved Profitability Why Are These Opportunities Analyzed So Extensively? Investment decisions should be analyzed carefully because such analysis is of assistance in the decision-making process and because the decisions are irreversible, have long-term strategic implications, are uncertain, and involve considerable financial exposure. Assistance Forecasting the future performance of a proposed investment requires the analyst to identify all the issues and effects, both positive and negative, associated with the investment. While this does not eliminate risk, it does lead to a more intelligent, betterinformed decision-making process. Facts and expectations based upon research and strategic thinking are incorporated into the forecast. The results of the financial analysis do not make the decision. People make decisions based upon the best available information. A capital expenditure requires significant funds and corporate commitment. It is vital that these decisions be well informed. Irreversible Operating decisions, such as scheduling overtime or purchasing larger .